Which tax year for work done but not yet paid?
Discussion
If I do some work during the 2017-2018 tax year, but get paid for it in the 2018-2019 tax year, does it go on the 2017-2018 tax return or the 2018-2019 tax return? What's relevant? When I did the work or when I got paid for it? Does the answer to this question change depending on when I send the invoice?
MitchT said:
If I do some work during the 2017-2018 tax year, but get paid for it in the 2018-2019 tax year, does it go on the 2017-2018 tax return or the 2018-2019 tax return? What's relevant? When I did the work or when I got paid for it? Does the answer to this question change depending on when I send the invoice?
Do you do your accounts on a cash basis or an accruals basis?If it's the former then you treat it as income in the year the cash is received. If the latter then you show it as income in the year you raise the invoice
I'd like the OP to answer the points I asked. Also, if a business, I'd like to know what the business year end is i.e. the date to which the annual accounts are made up.
As Alpinestars points out, MOST business accounts are NOT prepared using a simple "cash" basis. Most business accounts are prepared in accordance with accounting principles and concepts and, if the business is a limited company, in accordance with Financial Reporting Standards, Company Law and Corporation Tax law. None of these accept a "cash" basis as a "true and fair" method of preparing accounts.
Therefore, under normal accounting rules, if a sale has been made before the business year end but remains unpaid by the customer at the year end date, that sale still must be shown as part of sales in the accounting period in which the sale invoice was issued - not in the period in which it was eventually paid. If the business has decided that the sale has "gone bad" and the customer will not or cannot pay, then a COST should be shown as an expense in the business profit and loss account showing the writing off of the debt which has gone bad. In other words, the sale is still shown as a sale.
For smaller, sole trader type businesses, HMRC does allow "cash" basis accounts to be submitted as part of the annual Self Assessment tax return.
As Alpinestars points out, MOST business accounts are NOT prepared using a simple "cash" basis. Most business accounts are prepared in accordance with accounting principles and concepts and, if the business is a limited company, in accordance with Financial Reporting Standards, Company Law and Corporation Tax law. None of these accept a "cash" basis as a "true and fair" method of preparing accounts.
Therefore, under normal accounting rules, if a sale has been made before the business year end but remains unpaid by the customer at the year end date, that sale still must be shown as part of sales in the accounting period in which the sale invoice was issued - not in the period in which it was eventually paid. If the business has decided that the sale has "gone bad" and the customer will not or cannot pay, then a COST should be shown as an expense in the business profit and loss account showing the writing off of the debt which has gone bad. In other words, the sale is still shown as a sale.
For smaller, sole trader type businesses, HMRC does allow "cash" basis accounts to be submitted as part of the annual Self Assessment tax return.
Countdown said:
if OP is asking a question this "basic" I'm guessing he doesn't have an Accountant and therefore he doesn't have a LtdCo. i.e. if he was a LtdCo he would have had an accountant filing his accounts for him.
Ergo he's a sole trader.
You might be right although there are quite a few people who prepare limited company accounts without using accountants.Ergo he's a sole trader.
I'm a part time PAYE worker who does a tiny bit of freelance work on the side. I'm registered for self-assessment for this purpose but do my own tax returns as the work is so sparse that paying an accountant to do a tax return for me would cost almost as much as I've made - it's that little work I'm talking about!
In 2017-2018 I've been preoccupied with caring for a close friend who's been ill, so I've only done the one freelance job which I've just finished - hence my question. If I pay the tax in 2017-2018 there'd be no tax to pay as I've earned so little overall this year, but if it goes on next year's earnings I'll be hit for at least 20% tax on this job as I'm going to be very busy from the start of May for the whole year, so understandably I want to get it in this year!
In 2017-2018 I've been preoccupied with caring for a close friend who's been ill, so I've only done the one freelance job which I've just finished - hence my question. If I pay the tax in 2017-2018 there'd be no tax to pay as I've earned so little overall this year, but if it goes on next year's earnings I'll be hit for at least 20% tax on this job as I'm going to be very busy from the start of May for the whole year, so understandably I want to get it in this year!
Thanks for clarifying. It's hard to advise people without knowing the actual circumstances.
As your "self employment" activity is at such a low level, you will be available to submit your "self employed income and expenditure" details on a cash basis if you want to. Based on what you are saying, you are better off NOT going on a cash basis and declaring your self employment income and profit in the 2017/18 accounting period/tax year.
But, you see, you said you didn't need an accountant. This just goes to show what we are able to do.
As your "self employment" activity is at such a low level, you will be available to submit your "self employed income and expenditure" details on a cash basis if you want to. Based on what you are saying, you are better off NOT going on a cash basis and declaring your self employment income and profit in the 2017/18 accounting period/tax year.
But, you see, you said you didn't need an accountant. This just goes to show what we are able to do.
Edited by Eric Mc on Monday 2nd April 13:56
Thanks Eric.
I didn't say I didn't need an accountant, it's more a case of if I paid one to do a tax return for me their fees would exceed what I'd charged my client for the one job I did, certainly in the case of 2016-2017 where I did one £120 job! I do have access to an accountant in case things get more complicated.
I didn't say I didn't need an accountant, it's more a case of if I paid one to do a tax return for me their fees would exceed what I'd charged my client for the one job I did, certainly in the case of 2016-2017 where I did one £120 job! I do have access to an accountant in case things get more complicated.
MitchT said:
Thanks Eric.
I didn't say I didn't need an accountant, it's more a case of if I paid one to do a tax return for me their fees would exceed what I'd charged my client for the one job I did, certainly in the case of 2016-2017 where I did one £120 job! I do have access to an accountant in case things get more complicated.
I see where you are coming from. Good job you have access to PH I didn't say I didn't need an accountant, it's more a case of if I paid one to do a tax return for me their fees would exceed what I'd charged my client for the one job I did, certainly in the case of 2016-2017 where I did one £120 job! I do have access to an accountant in case things get more complicated.
MitchT said:
I'm a part time PAYE worker who does a tiny bit of freelance work on the side. I'm registered for self-assessment for this purpose but do my own tax returns as the work is so sparse that paying an accountant to do a tax return for me would cost almost as much as I've made - it's that little work I'm talking about!
In 2017-2018 I've been preoccupied with caring for a close friend who's been ill, so I've only done the one freelance job which I've just finished - hence my question. If I pay the tax in 2017-2018 there'd be no tax to pay as I've earned so little overall this year, but if it goes on next year's earnings I'll be hit for at least 20% tax on this job as I'm going to be very busy from the start of May for the whole year, so understandably I want to get it in this year!
This might be of help for the futureIn 2017-2018 I've been preoccupied with caring for a close friend who's been ill, so I've only done the one freelance job which I've just finished - hence my question. If I pay the tax in 2017-2018 there'd be no tax to pay as I've earned so little overall this year, but if it goes on next year's earnings I'll be hit for at least 20% tax on this job as I'm going to be very busy from the start of May for the whole year, so understandably I want to get it in this year!
https://www.gov.uk/government/publications/income-...
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